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Australian shipbuilder Austal Limited has announced significantly reduced earnings after the company entered a trading halt earlier this week.
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Austal provided an earnings forecast update in relation to the US T-ATS towing, salvage, and rescue ship program and the substantial earnings revision.
The company announced earnings before interest and tax (EBIT) guidance for FY2023 is reduced from earnings of approximately AU$58 million to an expected range between zero profit to a potential loss of AU$10 million.
Despite the significantly reduced EBIT guidance, Austal retained a healthy cash at bank position of approximately AU$179 million as at 30 June 2023.
Earlier this week, Austal entered a trading halt pending the release of the earnings announcement.
Austal chief executive officer Paddy Gregg said the company has encountered changes in specification and general cost inflation pressures for its T-ATS program.
“This is clearly a disappointing financial result for Austal given the success that we have had recently winning new projects to expand our US operations,” he said.
“The underlying issue is that the T-ATS award was received just prior to a period of unprecedented hyperinflation; some inaccurate assumptions were made regarding the efficiency of the new steel panel line in its first project and the project has also been subject to specification changes from the original award.
“It is clear that we need to make changes to some reporting structures and processes so that Austal USA can identify and rectify these sorts of issues in a more timely manner.
“It is important to note that the T-ATS contract is different to our more recently awarded programs, which have economic price adjustment clauses that provide important cost escalation and variation protection.
“Also, the T-ATS negotiations were conducted prior to the completion of our steel panel line, which limited operational visibility compared to subsequent contract awards.
“We will continue to proactively apply the lessons we’ve learn so far to enhance operational efficiencies as the T-ATS project progresses, and we are optimistic the REAs will mitigate some of the provisioned losses on the project.”
Investor statements indicate efficiency assumptions for the newly commissioned steel manufacturing line, such as labour hours and consequentially, recovery of overheads, did not meet forecasts and have been subsequently revised.
